Most Significant Economic Impact for Singapore in Next Two Years

Mr Edward Chia Bing Hui asked the Minister for Trade and Industry in view of the global supply chain disruption, continued labour challenges from overseas and high inflation rate, what will be the most significant economic impact for Singapore in the next two years.

The COVID-19 pandemic has led to strong economic headwinds in many countries. Singapore was not spared, with our economy contracting by 5.4% in 2020. The Singapore economy has since rebounded on the back of the recovery in global demand and good progress in our vaccination programme. Based on advanced estimates, the economy expanded by 7.2% in 2021.

For 2022, the economy is expected to grow by 3% to 5%. There are opportunities in the global economy that can help us achieve this growth. For example, global merchandise trade is expected to grow in 2022. Further, the continued shift in global economic weight towards Asia puts us in a position of strength and gives Singapore businesses the opportunity to tap on Asia’s growth. In addition, digitalisation can lower entry barriers and facilitate entry into global markets. The global sustainability trend will also provide new opportunities in areas like carbon services and renewable energy.

At the same time, there are a number of downside risks that we need to pay attention to.

Externally, intensifying strategic competition between US and China and the continued rise in geopolitical tensions could narrow the markets our companies can tap on, or disrupt current trade. Singapore businesses will also continue to feel the impact of global supply chain disruptions from border and movement control, shortage of shipping capacity and port congestion. Other trends, including the growth of digitally-enabled remote work and continued movement restrictions due to COVID-19, could impact Singapore’s hub status and competitiveness.

Domestically, we are fast running up against resource constraints. Access to sufficient manpower with the right skills is a key challenge faced by businesses across many sectors, with movement restrictions due to COVID-19 exacerbating the shortage. In addition, as the world decarbonises, energy costs will also rise. These resource constraints may hamper growth and lead to a rise in business costs. Other imported cost pressures include supply-demand mismatches in various commodities and goods markets, as well as bottlenecks in global transportation, that are likely to persist for some time. In 2022, the CPI-All Items inflation is forecast to average between 1.5% and 2.5%, after coming in at a projected 2.3% in 2021.

On the other hand, some of these very same headwinds can offer opportunities for our workers and businesses. For example, we can position Singapore as a safe and resilient node in an unpredictable world and anchor activities for businesses looking to diversify from other markets. Resource constraints can also push us to develop solutions that serve global needs, in the same way we did for water.

Taking into consideration all these factors, there are three areas that Singapore needs to pay attention to in the next few years as we seek to ride on the opportunities, while at the same time mitigating the risks that we are faced with.

First, businesses need to continue to transform and restructure so that they can raise productivity and optimise their use of scarce resources like labour and carbon. For example, companies can tap on technology to automate their operations and become more efficient. At the same time, they also need to enhance their business resilience given the current unpredictable environment.

Next, businesses have to develop new business models to ride on key growth sectors and markets. The impact of digitalisation and push for greater sustainability will continue to widen and deepen across all sectors. These transformations will allow firms to seize new opportunities both at home and abroad.

Third, we must remain open to complementary talent and manpower from abroad that can help us to be globally competitive. We must guard against turning insular as Singapore’s ability to function as a business hub and create more opportunities for Singaporeans will be diminished if companies find it hard to access the talent needed to do business out of Singapore, compared to other locations worldwide.

At the same time, we must continue to develop our local workforce. One way to do this is to build on the human capital of the existing workforce by upskilling and training workers to take on new roles so that we can seize opportunities arising from our economic growth.

Singapore and Singaporeans have stayed ahead of our competition by remaining adaptable to changes in the world economy. We must continue to be nimble and upgrade to create growth and good jobs with fewer resources. The Government remains strongly committed to supporting businesses and workers to transform and seize new opportunities. Together, we can embrace the changes ahead and stay relevant and competitive in this rapidly changing economic operating environment.